Italy bond yields continue to rise amid auction results

EU Market Update: Italy bond yields continue to rise amid auction results and ongoing political concerns

Notes/Observations

-Yen gains as Finance Min Aso plays down corporate tax cut speculation

-USD/CHF hits 7.5 month low; EUR/CHF hits 3-month low

-Pound supported by BoE Carney comments, little reaction in Gilt market

-Aug EuroCoin Indicator has first positive reading since Oct 2011, in line with improving euro zone data points

-Improvement in Greek corporate funding conditions: Eurobank to move forward with IPO, Piraeus Bank to conduct IPO for Geniki unit.

-Italian bonds continue to underperform

Economic Data of Note

- (FR) FRANCE Q2 FINAL GDP Q/Q: 0.5% V 0.5%E; Y/Y: 0.4% V 0.3%E

- (EU) EURO ZONE SEPT BUSINESS CLIMATE INDICATOR: -0.20 V -0.10E; CONSUMER CONFIDENCE: -14.9 V -14.9 PRELIM

- (ES) SPAIN SEPT PRELIMINARY CPI Y/Y: 0.3% V 0.9%E; CPI EU HARMONIZED Y/Y: 0.5% V 0.9%E

- (CH) SWISS SEPT KOF LEADING INDICATOR: 1.53 V 1.45E

- (IT) ITALY SEPT BUSINESS CONFIDENCE: 96.6 V 93.4E; ECONOMIC SENTIMENT: 83.3 V 82.0 PRIOR

- (ES) SPAIN AUG ADJUSTED RETAIL SALES Y/Y: -4.5% V -7.0%E (38th straight decline); RETAIL SALES Y/Y: -4.2% V -2.0% PRIOR

Fixed Income:

(IN) India sells an undisclosed amount vs. INR140B indicated in 2020, 2027, 2030 and 2041 bonds

(IT) Italy Debt Agency (Tesoro) sells total €6.0 v €5.0-6.0B indicated in 2018 and 2024 bonds

- Sells €3.0B v €2.5-3.0B indicated in Dec 2018 BTPs; Avg Yield: 3.38% v 3.38% prior; Bid-to-cover: 1.43x v 1.29x prior

- Sells €3.0B v €2.5-3.0B indicated in Mar 2024 BTPs; Avg Yield: 4.50% (highest since June) v 4.46% prior; Bid-to-cover: 1.38x v 1.47x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Indices [Stoxx50 -0.20%, FTSE 100 -0.30% at 6,543, DAX -0.20% at 8,647, CAC-40 -0.10% at 4,183, IBEX-35 -0.30% at 9,242, FTSE MIB -0.30% at 17,810, SMI -0.10% at 8,049, S&P 500 Futures -0.30% at 1,688]

Market Focal Points: Mixed trading in the banking sector, Basic Materials underperform, US Fed speakers for later today (Evans, Rosengren, Dudley)

By Sector

Telecom [Telecom Austria TKA.AT +6% (outperforms telecom sector)]

Industrials [Vallourec VK.FR -8% (cautious outlook commentary), HeidelbergCement HEI.DE -2% (broker commentary); Babcock International BAB.UK +1.5% (reaffirmed outlook)]

Energy [Vestas Wind VWS.DK +10% (agreement with Mitsubishi Heavy)]

Consumer Discretionary [Adecco ADEN.CH +2% (broker commentary), Adidas ADS.DE +1% (earnings from Nike)]

EuroStoxx50 Sectors [Basic Materials -0.90%, Consumer Non-Cyclical -0.40%, Consumer Cyclical -0.3%, Financials -0.30%, Technology -0.20%; Energy +0.40%, Utilities +0.10%, Telecom flat, Industrials flat]

Speakers:

(US) IMF Chief Economist Blanchard: Recovery in the US economy is continuing. US policy will tighten global financial conditions. US policy may cause decrease or reversal in capital flows. Russia Econ Min: 2013 GDP could be above the forecasted 1.8% Russia Fin Ministry: No plans to increase borrowing, to borrow some RUB200B less than planned on the domestic market Thai Fin Ministry: cuts 2013 GDP growth forecast to 3.7% from 4.5% Sweden Debt office: In order to lower costs, proposes that the benchmark of foreign currency share of 15% be replaced by a ceiling at the same level

Political/In the Papers:

(IN) India RBI gov Rajan is thinking of shifting to the use of CPI as the bank's main guide for monetary policy. The bank currently uses wholesale inflation (WPI) to guide much of its policy. The switch could foreshadow further increases in the refi rate.

(JP) S&P: Sees nothing wrong with Negative Outlook for Japan's sovereign rating. If the budget deficit doesn't shrink Japan's rating could be downgraded

(UK) BoE Gov Carney: Doesn't see a case for more QE. Could reconsider QE if the recovery falters

(US) Fed's Evans (dov, FOMC voter): Hopes US unemployment will fall to around 5% in 2-3 years

(DE) German Bundesbank asks banks to submit data for interest rate stress tests by Sep 30th

(IT) Italy PM Letta to meet with Pres Napolitano on his return to Rome from New York today to ask for guidance on what to do going forward after it appears the grand coalition govt may fail

(CN) China State Council unveils rules for Shanghai Free Trade Zone: Will push service sector opening and financial sector opening in Shanghai FTZ, To allow qualified foreign investors in FTZ to freely transfer investment returns, To ease requirements for foreign investors to set up in Shanghai FTZ, To begin on Sep 29th

(DE) German SPD ready to back exploratory coalition talks

Forex

EUR 1.3507, change +0.0021; GBP 1.6070, change +0.0034; CHF 0.9081, change -0.00230; JPY 98.66, change -0.310; AUD 0.9326, change -0.0037

Looking Ahead

- 06:00 (DE) Germany CPI Bavaria M/M: No est v 0.0% prior; Y/Y: No est v 1.4% prior

- 06:00 (EU) ECB announces 3-Year LTRO Repayment

- 06:10 (UK) DMO to sell combined £ in 1-month, 3-month and 6-month Bills

- 06:30 (US) Daily Libor Fixing

- 08:00 (DE) Germany Sept Preliminary CPI M/M: No est v % prior; Y/Y: No est v % prior

- 08:00 (DE) Germany Sept Preliminary CPI EU Harmonized M/M: No est v % prior; Y/Y: No est v % prior

- 08:00 (ES) Spain PM Rajoy sends Spain's 2014 Budget to Cabinet for Approval

- 08:30 (US) Aug Personal Income: No est v 0.1% prior; Personal Spending: No est v 0.1% prior

- 08:30 (US) Aug PCE Deflator M/M: No est v 0.1% prior; Y/Y: No est v 1.4% prior

- 08:30 (US) Aug PCE Core M/M: No est v 0.1% prior; Y/Y: No est v 1.2% prior

- 09:55 (US) Sept Final University of Michigan Confidence: No est v ## prelim

- 10:15 (US) Fed's Evans discusses Economy on Panel in Oslo

- 11:00 (US) Fed to purchase $4.75-5.75B in Notes